Rescuing U.S. Oil By Restricting Imports Would Be A Bad Idea

President Trump is under increasing pressure to come to the rescue of the U.S. oil industry.

Thanks to export restrictions lifted by his predecessor and advances in hydraulic fracturing, the United States now produces more crude than any country in the world. That has led to lots of jobs, lots of money and, not surprisingly and perhaps fittingly, lots of influence.

One bad idea getting kicked around would be restricting or even cutting off oil imports, including from Saudi Arabia.

There are two primary reasons this would be bad policy. It would primarily hurt domestic industry and a strong ally.

First, a little background.

In 2019, the United States imported $127 billion in oil and exported $65.4 billion. Exports, in other words, were worth slightly more than half as much in imports. They were the second- and third-ranked U.S. import and export, respectively.

Let’s go back to just 2008. Oil exports first topped $2 billion for the first time. That same year, oil imports set a record also. The total was a touch under $354 billion. It ranked as the United States most valuable import. Oil ranked No. 119.

This phenomenal growth has put enormous pressure on the OPEC nations largely in the Middle East and OPEC+ nations such as Russia, as the price of oil has fallen, including precipitously in recent days.

While the cost to produce oil in this country is higher than in Saudia Arabia and the Middle East as well as in Russia, the impact on those countries is greater, given the relative weight of those industries in those countries.

In the Middle East, for example, oil revenue accounts for 40-90% of government revenues, according to Jim Krane, the Wallace Wilson Fellow for Energy Studies at Rice University’s Baker Institute for Public Policy in Houston.

So, in the age of coronavirus, you might be asking yourself a rather simple question: If we export so much oil, why not stop exporting and limit, or eliminate, our imports?

In much the same way that toilet paper is more of a logistics issue than a shortage — it has proven difficult to shift production and distribution from restaurants, office buildings and hotels to home use — so too are there supply chain elements here.

The oil produced in this country is largely light, or “sweet” oil. The oil we import from Saudi Arabia and other Middle Eastern countries, from Mexico, Canada and Venezuela, and elsewhere, is largely “sour” or heavy oil.

It comes here because we are good at processing that oil, which is more complicated to turn into gasoline and other refined petroleum products given its higher sulfur content and viscosity. In fact, our refineries, Krane explained, get a premium for that refining.

You can see where this is going. You help the domestic producers by shutting off the spigot of foreign oil, you punish the refining industry here.

The second reason this would be a bad idea is that our No. 1 supplier of oil, year in and year out, is not some Middle Eastern nation with which we have issues of governance styles. It’s Canada.

Canada supplied the United States with 49% of imported oil last year. Mexico accounted for 9.5%. Colombia, Ecuador and Brazil accounted for another 10.1%.

So, any restrictions on oil imports would be a real gut-punch to Canada, in particular. And anything that excluded Canada would be meaningless.